Access Journal

Access to Science, Business, Innovation in the Digital Economy

Macroeconomic determinants of poverty in South Africa: the role of investments in artificial intelligence

Published Online: Mar 1, 2024
Views: 421
Downloads: 25
Download PDF

Abstract:
Objectives: This study marks a departure from conventional research that predominantly focuses on AI's impact on economic growth. Instead, it uniquely centers on the interplay among fiscal policy, AI investment, monetary policy, and poverty alleviation in South Africa, a nation recognized for its extreme income inequality. In doing so, this research distinguishes itself from the prevailing macro-level studies by scrutinizing the intricate relationship between artificial intelligence, poverty, monetary policy, and fiscal policy, particularly within the South African context. Methods/Approach: It employs the Praise-Winsten model and other econometrics diagnostics for the empirical analysis. Results: The findings reveal that government expenditure on education and investments in artificial intelligence only stimulate household consumption and, therefore, reduce poverty when they are interacted. A one-unit rise in the interaction term increases household consumption by 0.031. Additionally, a unit increase in government national expenditure and broad money growth results in a 0.007 and 0.014 decrease in poverty, respectively. Similarly, gross capital formation positively affects household consumption, thereby reducing poverty in the country by 1.022 due to a one-point increase. In general, taxes on goods and services and the repo rates exert a non-statistically significant effect on the level of poverty in the country. Conclusions: To effectively address these findings, it is imperative to conduct a thorough evaluation of government spending on education to ensure prudent resource allocation and prevent the mismanagement of public funds.
Keywords:
Pages:
288-305
JEL Classification:
E52, H3, H5, I3, O3
How to cite:
Aromolaran, O., Ngepah, N., Saba, C.S. (2024). Macroeconomic determinants of poverty in South Africa: the role of investments in artificial intelligence. Access to science, business, innovation in the digital economy, ACCESS Press, 5(2), 288-305, https://doi.org/10.46656/access.2024.5.2(7)
References:
  • Adekunle, A., Osazuwa, P., Raghavan, V. (2016). Socio-economic Determinants of Agricultural Mechanisation in Africa: A Research Note Based on Cassava Cultivation Mechanisation. Technological Forecasting and Social Change, 112, 313–319. https://doi.org/10.1016/j.techfore.2016.09.003
  • Akobeng, E. (2017). Gross capital formation, institutions and poverty in Sub-Saharan Africa. Journal of Economic Policy Reform, 20(2), 136-16. DOI:10.1080/17487870.2015.1128833
  • Alamanda, A. (2020). The effect of government expenditure on income inequality and poverty in Indonesia. Info Artha, 4(1), 1-11. DOI: https://doi.org/10.31092/jia.v4i1.614
  • Amin, S. (1972). Underdevelopment and Dependence in Black Africa – Origins and Contemporary Forms. The Journal of Modern African Studies, 10(4), 503–524. http://www.jstor.org/stable/160011
  • Anarfo, E. B., Agoba, A. M., Abebreseh, R. (2017). Foreign direct investment in Ghana: The role of infrastructural development and natural resources. African Development Review, 29(4), 575-588. https://doi.org/10.1111/1467-8268.12297
  • Anjande, G., Asom, S. T., Ayila, N., Mile, B. N., Ijirshar, V. U. (2022). Government Spending and Money Supply Roles in Alleviating Poverty in Africa. arXiv preprint arXiv:2209.14443v1, https://doi.org/10.48550/arXiv.2209.14443 (accessed on 11-02-2024)
  • Asian Development Bank. (2018). Asian development outlook 2018– How technology affects jobs. Manila. Retrieved from https://www.adb.org/sites/default/files/publication/411666/ado2018.pdf (accessed on 14-02-2024)
  • Bachewe, F. N., Berhane, G., Minten, B., Taffesse, A. S. (2018). Agricultural Transformation in Africa? Assessing the Evidence in Ethiopia. World Development 105, 286–298. DOI:https://doi.org/10.1016/j.worlddev.2017.05.041
  • Banga, K., Ruiz Rodriguez, A., te Velde, D. W. (2020). Digitally enabled economic transformation and poverty: Evidence from Kenya and Cambodia. Supporting Economic Transformation. https://set.odi.org/wp-content/uploads/2020/09/DEET-and-poverty-reduction_final-2.pdf (resolved)
  • Bateman, M., Duvendack, M., Loubere, N. (2019). Is fin-tech the new panacea for poverty alleviation and local development? Contesting Suri and Jack’s M-Pesa findings published in Science. Review of African Political Economy, 46(161), 480-495. https://doi.org/10.1080/03056244.2019.1614552
  • Batrancea, L., Rathnaswamy, M. K., Batrancea, I. (2022). A panel data analysis on determinants of economic growth in seven non-BCBS Countries. Journal of the Knowledge Economy, 13(2), 1651-1665. https://doi.org/10.1007/s13132-021-00785-y
  • Borg, A. (2016). How will the Fourth Industrial Revolution affect economic policy? World Economic Forum, Davos, January 28; https://www.weforum.org/agenda/2016/01/how-will-the-fourth-industrial-revolution-affect-economic-policy/ (accessed on 11-02-2024)
  • Ciszewska-Mlinaric, M. (2009). The Conditions of Organization Adaptive Capabilities. Case of Polish Public Hospitals. Contemporary Economics, 3(4), 143
  • Davis, E. P., Sanchez-Martinez, M. (2014). A review of the economic theories of poverty, paper 435. https://www.niesr.ac.uk/wp-content/uploads/2021/10/dp435_0.pdf (accessed on 12-02-2024)
  • Davis, E. P., Sanchez-Martinez, M. (2015). Economic theories of poverty. Joseph Rowntree Foundation
  • Dunga, H. (2019). The impact of technological revolution on poverty: a case of South Africa. Proceedings of International Academic Conferences, 9010709, International Institute of Social and Economic Sciences
  • Ernst, E. (2022). Artificial intelligence: productivity growth and the transformation of capitalism. Platforms and Artificial Intelligence Progress in IS, 2022, p. 149-181. https://doi.org/10.1007/978-3-030-90192-9_7
  • Fox, L., Signé, L. (2021). The fourth industrial revolution (4IR) and the future of work: could this bring good jobs to Africa. Evid. Synth. Pap. Ser, 51. https://includeplatform.net/publications/the-fourth-industrial-revolution-4ir-and-the-future-of-work-could-this-bring-good-jobs-to-africa/ (accessed on 12-02-2024)
  • Fox, L., Mader, P., Sumberg, J., Flynn, J., Oosterom, M. (2020). Africa’s 'youth employment' crisis is actually a 'missing jobs' crisis. Brooke Shearer Series No. 9. Brookings Institution. DOI: 10.1111/dpr.12528
  • Gupta, S., Verhoeven, M., & Tiongson, E. (2002). The Effectiveness of Government Spending on Education and Health Care in Developing and Transition Economies. European Journal of Political Economy, 18(4), 717-737
  • Hamel, K., Tong, B., Hofer, M. (2019). Poverty in Africa is now falling-but not fast enough. Future Development
  • Harari, Y. N. (2018). 21 lessons for the 21st century. London: Vintage
  • Izquierdo, A., Brown, W., Ames, B., & Devarajan, S. (2001). Macroeconomic policy and poverty reduction. In Macroeconomic Policy and Poverty Reduction. International Monetary Fund (accessed on 15-02-2024)
  • Jeffrey, M. (2013). Introductory Econometrics a Modern Approach. 5th Ed. New York: John Wiley & Sons
  • Kabuya, F. I. (2015). Fundamental causes of poverty in Sub-Saharan Africa. IOSR Journal of Humanities and Social Science, 20(6), 78-81. DOI:10.9790/0837-20657881
  • Kazungu, K. G., Cheyo, M. B. (2014). Government expenditure on growth strategies and poverty reduction in Tanzania. What have we learned? African Journal of Economic Review, 2(1), 38-47
  • Kwan, L. Y. Y., Chiu, C. y. (2015). Country variations in different innovation outputs: The interactive effect of institutional support and human capital. Journal of Organizational Behavior, 36(7), 1050-1070. 10.1002/job.2017
  • Lohr, S. (2018, October 19). From agriculture to art – the AI wave sweeps in. New York Times, Business Day. Retrieved from https://www.nytimes.com/2018/10/21/business/from-agriculture-to-art-the-ai-wave-sweeps-in.html (accessed on 14-02-2024)
  • Lu, C. H. (2021). The impact of artificial intelligence on economic growth and welfare. Journal of Macroeconomics, 69, 103342. DOI: 10.1016/j.jmacro.2021.103342
  • McKinsey Global Institute. (2016). Digital Finance for All: Powering Inclusive Growth in Emerging Economies. McKinsey & Company. https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Employment%20 and%20Growth/How%20digital%20finance%20could%20boost%20growth%20in%20emerging%20economies/MGI-Digital-Finance-For-All-Executive-summary-September-2016.ashx (accessed on 12-02-2024)
  • Mehmood, R., Sadiq, S. (2010). The relationship between government expenditure and poverty: A cointegration analysis. Romanian Journal of Fiscal Policy (RJFP), 1(1), 29-37. http://hdl.handle.net/10419/59799
  • Mena-Guacas, A. F., Rodríguez, J. A. U., Trujillo, D. M. S., Gómez-Galán, J., López-Meneses, E. (2023). Collaborative learning and skill development for educational growth of artificial intelligence: A systematic review. Contemporary Educational Technology, 15(3), ep428. DOI: 10.30935/cedtech/13123
  • Mesnard, X. (2016). What happens when robots take our jobs? The fourth industrial revolution. World Economic Forum, Davos, January 21
  • Mhlanga, D. (2021). Artificial intelligence in the industry 4.0, and its impact on poverty, innovation, infrastructure development, and the sustainable development goals: Lessons from emerging economies? Sustainability, 13(11), 5788. https://doi.org/10.3390/su13115788
  • Mokoena, M., Mazenda, A. (2023). The role of fiscal policy on poverty reduction in South Africa. Future Business Journal, 9(1), 78. https://doi.org/10.1186/s43093-023-00256-7
  • Mumtaz, S., Ali, M. (2022). Impact of exchange rate and its volatility on domestic consumption in India and Pakistan. Journal of Public Affairs, 22(2), e2479. https://doi.org/10.1002/pa.2479
  • Musara, M., Mabila, T., Gwaindepi, C., Dhoro, N. L. (2020). Entrepreneurial activity for economic growth and unemployment reduction in South Africa. International Journal of Entrepreneurship. Research Article: 2020 Vol: 24 Issue: 2. https://www.abacademies.org/articles/Entrepreneurial-Activity-for-Economic-Growth-And-Unemployment-Reduction-In-South-Africa.pdf (accessed on 12-02-2024)
  • Mushtaq, R., Bruneau, C. (2019). Microfinance, financial inclusion and ICT: Implications for poverty and inequality. Technology in Society, 59, 101154. ff10.1016/j.techsoc.2019.101154ff. ffhal-03452826
  • Naudé, W. (2017). Entrepreneurship, education and the fourth industrial revolution in Africa. DOI: 10.2139/ssrn.2998964
  • Nuru, N. Y., Zeratsion, M. G. (2022). The effects of government spending shocks on income distribution in South Africa. Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 38(4), pp. 692-703
  • Ofori, I. K., Armah, M. K., Taale, F., Ofori, P. E. (2021). Addressing the severity and intensity of poverty in Sub-Saharan Africa: how relevant is the ICT and financial development pathway? Heliyon, 7(10), e08156
  • Oriavwote, V. E., Ukawe, A. (2018). Government expenditure and poverty reduction in Nigeria. Journal of Economics and Public Finance, 4(2), 156-163. https://doi.org/10.22158/jepf.v4n2p156
  • Oyewale, P. O., Osadola, O. S. (2018). Military regimes and Nigeria’s economic development, pp.1966-1999. Journal of Social Economics Research, 5(1), 29-38. DOI: 10.18488/journal.35.2018.51.29.38
  • Prisecaru, P. (2016). Challenges of the Fourth Industrial Revolution. Knowledge Horizons – Economics, 8(1), pp.57– 62. DOI: 10.5430/ijfr.v9n2p90
  • Rami ́Reza, J. M., Di ́Azb, Y., Bedoya, J. G. (2017). Property Tax Revenues and Multidimensional Poverty Reduction in Colombia: A Spatial Approach, World Development, 23, 70-81. DOI: https://doi.org/10.2478/sues-2020-0007
  • Rozalinda, R. (2014). Ekonomi Islam: Teori Dan Aplikasinya Pada Aktivitas Ekonomi. Salemba
  • Saba S. C., Ngepah, N. (2019). Military expenditure and economic growth: evidence from a heterogeneous panel of African countries. Economic research-Ekonomska istraživanja, 32(1), pp.3586-3606. DOI: https://doi.org/10.1080/1331677X.2019.1674179
  • Saba, C. S., Ngepah, N. (2022a). Convergence in renewable energy sources and the dynamics of their determinants: An insight from a club clustering algorithm. Energy Reports, 78, pp.116-125. DOI: https://doi.org/10.1016/j.egyr.2022.01.190
  • Saba, C. S., Ngepah, N. (2022b). Convergence in renewable energy consumption and their influencing factors across regions: evidence from convergence algorithm approach. Environmental Science and Pollution Research. DOI: https://doi.org/10.1007/s11356-022-19731-9
  • Saba, C. S., Ngepah, N. (2022c). Nexus between telecommunication infrastructures, defence and economic growth: a global evidence. NETNOMICS: Economic Research and Electronic Networking. DOI: https://doi.org/10.1007/s11066-022-09151-9
  • Sae-Lim, P., Jermsittiparsert, K. (2019). Is the Fourth industrial revolution a panacea? Risks toward the fourth industrial revolution: Evidence in the Thai economy. International Journal of Innovation, Creativity and Change, 5(2), 732-752
  • Sayyidina, N. A., Iranto, D., Suparno, S. (2023). The Effect of Government Expenditure in the Education Sector, Human Development Index, and Economic Growth on Poverty Rate in Eastern Indonesia. Journal of Business and Economics Research (JBE), 4(2), 186-193. DOI: https://doi.org/10.47065/jbe.v4i2.3559
  • Selemela, A., Khwela, M. N., & Selelo, M. E. (2023). The role of the fourth industrial revolution in achieving economic development: challenges and opportunities. International Journal of Research in Business and Social Science (2147-4478), 12(7), pp.244-253
  • Shank, P. (2016). The Fourth Industrial Revolution: What Happens with Employment? https://www.td.org/Publications/Blogs/Learning-Executive Blog/2016/05/The-Fourth-Industrial-Revolution-What-Happens-with-Employment (resolved)
  • Shava, E., Hofisi, C. (2017). Challenges and opportunities for public administration in the fourth industrial revolution. African Journal of Public Affairs, 9(9), 203-215. https://journals.co.za/doi/pdf/10.10520/EJC-c13dbfea9 (accessed on 11-02-2024)
  • Signé, L. (2022). Africa’s role in the Fourth Industrial Revolution: Riding the world’s biggest wave of disruptive innovation. Cambridge University Press. DOI: https://doi.org/10.1017/9781009200004
  • Solarin, S. A. (2022). Modelling two dimensions of poverty in selected developing countries: the impact of fossil fuel subsidies. Social Indicators Research, 160(1), 357-379
  • Stack, S. (1978). The effect of direct government involvement in the economy on the degree of income inequality: A cross-national study. American Sociological Review, 880-888. https://doi.org/10.2307/2094627
  • Thailand Board of Investment. (2017). Thailand 4.0 Mean Opportunities in Thailand. Thailand Investment Review, 27(1), 1-12
  • The future of jobs and skills (World Economic Forum), http://www3.weforum.org/docs/WEF_FOJ_Executive_Summary_Jobs.pdf (accessed on 13-02-2024)
  • UNCTAD. (2014). Economic Development in Africa Report 2014: Catalysing Investment for Transformative Growth in Africa. Geneva: UNCTAD
  • World Bank. (2018). Poverty and Shared Prosperity 2018: Piecing together the poverty puzzle. https://openknowledge.worldbank.org/server/api/core/bitstreams/34b63a7c-7c89-5474-b9d3-f4f35085fe83/content (accessed on 12-02-2024)
  • World Economic Forum (2016), “The future of jobs employment, skills and workforce strategy
  • World Economic Forum. (2017). The Future of Jobs and Skills in Africa Preparing the Region for the Fourth Industrial Revolution. https://www.weforum.org/publications/the-future-of-jobs-and-skills-in-africa-preparing-the-region-for-the-fourth-industrial-revolution/ (please check link) (accessed on 13-02-2024)
  • Zahonogo, P. (2017). Financial development and poverty in developing countries: evidence from Sub-Saharan Africa. International Journal of Economics and Finance, 9(1), 211-220. 10.5539/ijef.v9n1p211
  • Zhou, Y., Liu, Y. (2022). The geography of poverty: Review and research prospects. Journal of Rural Studies, 93, 408-416. https://doi.org/10.1016/j.jrurstud.2019.01.008

Publish your science journal

If you like ACCESS journals system, you can publish your journal with us at a reasonable price